Americans who became self-employed or started a business in 2022 should hire an accountant to do their tax returns to maximize the allowable deductions available, according to one expert.
“[If] you own your own business, if you have your own corporation, if you have rental property, I would definitely look for a professional because there are so many discounts that you can get that most people are not aware of,” Louis Barajas, an agent of recorded. and Opportunity Coach on PBS’ Opportunity Knock$, told Yahoo Finance Live (video above).
Many new business owners may not be aware of the business expense deductions available to them, such as costs that are considered ordinary and necessary for the business.
“What people don’t know is that they can get any expense that they use for that business that was ordinary and necessary,” Barajas added.
Since what is common and necessary in one industry may be extraordinary and unnecessary in another, it is important to consider what expenses your business actually needs before trying to write them off.
“So that’s going to be the first thing every business owner has to ask themselves,” Grant Dougherty, enrolled agent and founder of Dougherty Tax Solutions, told Yahoo Finance in a separate interview. “Is it common? Necessary? Is it reasonable?”
For example, business owners can deduct administrative work supplies, office utilities, or employee uniforms if they are needed in the regular course of business.
Barajas shared two other deductions that business owners can skip themselves: the home office deduction and Section 179 depreciation.
The home office deduction is allowed for any business owner who has spaces in their home that are used regularly and exclusively for the conduct of business. This area must also be the principal place of business, according to the IRS website. The deduction is not available to W-2 employees.
“I’m able to take a piece of the place where I work in my area as opposed to the whole house and I can depreciate it,” Barajas said. “I can get the utility bills. If I’m paying off a mortgage, I can claim expenses based on that percentage of self-employed income tax. I can get property taxes at that percentage.”
Barajas also shared the rule for reimbursement of business expenses under Article 179,
“Section 179 deductions that most people don’t even know about means that when you buy a computer, instead of depreciating it or buying a printer, you can write it off,” he said.
The IRS has previously issued guidance on the Section 179 deduction.
“I can’t tell you how many times I’ve had to go back and amend tax returns for people who did their returns that had their own businesses or their own rental properties,” Barajas said. “This is when you look for a professional.”
Rebecca is a reporter for Yahoo Finance and previously worked as an investment tax certified public accountant (CPA).
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